Pinklining: Predatory Lenders Zero in on Minority Women

Playing by the rules is far from enough, as one NJ woman sadly discovered

Lorian Smith's house in East Orange.

Women, particularly in minority neighborhoods, have been disproportionately victimized by predatory lenders. High fees and onerous terms for what should be routine financial transactions have increased these women’s debt, according to a new report released by an alliance of community groups.

One of those women is Lorian Smith. "I have played by all the rules," she said. "I got an education, I had a career, I bought a home, I raised a family." Now, the East Orange retiree is struggling to keep her home from foreclosure while caring for a mentally impaired relative.

"What jumped out at me from this research is that African-American woman were 256 percent more likely than their white male counterparts to be offered 'subprime' mortgages," with high interest rates or difficult terms, said Rep. Keith Ellison, whose district includes Minneapolis. "That and the fact that 10 years ago, there were 2,000 'payday' lenders," who generally offer short-term loans at high interest rates, "and today there are more than 20,000" nationally, he said.

Besides being more likely to be offered bad mortgage deals, women account for 60 percent of payday borrowers; and those borrowers, a California study found, are concentrated in minority areas.

Women of all races account for almost two-thirds of students at for-profit colleges, which are proportionately more expensive than many public institutions, according to the “pinklining” study, sponsored by New Jersey Communities United, the Isaiah interfaith group in Minnesota and the ACCE Institute (Alliance of Californians for Community Empowerment).

Suparna Bhaskaran, who wrote the study, borrowed the term from "redlining," the name banks give to the practice of making few or no loans in defined minority neighborhoods, which at times in the last century was supported by public policy.

"This is reverse redlining," Bhaskaran said. "Loans are made available, but at terms that are designed to beget bad credit. Women are trying to improve their lives and the lives of their families, but instead they end up losing" wealth and assets.

"I believe that this research connects the dots in a unique and important way between the exploitation of certain financial practices and women and communities of color," said Sister Simone Campbell, a lawyer and director of Network, a Roman Catholic social services organizations. (She is perhaps better known as leader of the "nuns on the bus" social activism campaign.)

"The fabric of our society is being torn apart by predatory financial practices," which are shifting wealth from women and minorities to financial enterprises, said Campbell.

Some of the problems identified in the study are familiar to a wide range of borrowers, not just minority women. Student loan debt now exceeds car loans, credit card debt, and all types of other nonmortgage debt, according to the Federal Reserve Bank of New York.

For households with debt, the averages are $169,000 for mortgages, $48,000 for student loans, $27,000 for car loans and $16,000 for credit cards, according to the personal finance website NerdWallet. The average household pays $6,658 in interest each year, 9 percent of income, the company found.

Banks used to make most of their money from interest they charged on loans; they then put it to work to grow the economy. But that has changed over the past several decades, as anyone with a bank account, investment account, or credit card knows. Now, financial service companies make their biggest profits from transaction fees.

Those charges have fueled the explosive growth of the financial sector, according to data from the U.S. Department of Commerce. Finance now accounts for roughly 30 percent of all U.S. corporate profits, up from 9 percent in 1950, according to the department's Bureau of Economic Analysis.

Minority women are especially vulnerable to bad deals, because they often have fewer options, particularly if they live in neighborhoods not well-served by traditional lenders, according to Bhaskaran. Their access to credit is "unfairly influenced by combination of zip code, neighborhood, race and gender."

That occurs on top of structural sexism and racism in hiring patterns, she said. For example, while overall, women are paid about 79 percent of what white men earn, the figures are 63 percent for African-American women and 54 percent for Latinas, according to a 2015 report by the American Association of University Women.

"Women often face occupational segregation, work that is undervalued and concentrated in certain sectors," Bhaskaran said. "And many of the women we talked to are effectively dealing with a 'second shift,' coming home to provide care for others."

"Issues of race, gender and economics are very clearly central to the health and well-being of women and their families," said Andrea Flynn of the Roosevelt Institute, a liberal New York think tank. Current policy choices, including loan regulation or non-regulation, create a "wealth gap" that leaves "many women vulnerable into falling into a cycle of debt."

Like many others, Smith's problems began with the bursting of the housing bubble in 2007 and the resulting Wall Street crash. She had spent decades working at a New York City hospital, and had taken a second lab technician job to supplement her income.

In 2002, she bought a house "in a very beautiful area," with hardwood floors and a fireplace, "not a lot of ground, but a beautiful house," she said. But during the Great Recession, both of her jobs were eliminated. Meanwhile, her mortgage was shuttled between banks.

She turned to cash advances on her credit cards and a series of part-time jobs, and eventually was able to draw on a pension and Social Security to get her finances under control, she said. As with many other borrowers, though, confusion is Smith's biggest problem. On one hand, she is enrolled in a trial mortgage modification program. On the other, lawyers are sending her letters threatening foreclosure.

Smith says she has sufficient funds for her fixed-rate loan, but her mortgage servicer keeps changing the monthly bill for it. The only explanation she has been able to get for the changing bills is that it is because of escrow, "which shouldn't be a monthly thing," she said.

At a Los Angeles event highlighting the new study, organizers tied its release to the current comment period for new regulations proposed by the federal Consumer Fraud Protection Bureau (CFPB). The regulations, which would curb some of the worst loan abuses, face opposition from congressional Republicans.

"The idea that people should have to take on debt to survive is a false choice," said Doran Schrantz, executive director of Isaiah. "We need a wide range of measures, including lower housing costs."

Paul Karr of New Jersey Communities United said his group supports strengthening the CFPB regulations. But the experiences of Smith and others interviewed during the study show that solutions require a comprehensive approach, he said.

"We're very happy to have this data from around the nation, which confirms what we've learned anecdotally from women here in New Jersey, that they often face discrimination and poor treatment in everyday financial dealings," he said.